1
EXHIBIT 13
CONSOLIDATED STATEMENTS OF EARNINGS
amounts in millions, except per share data Fiscal Year Ended
- ------------------------------------------------------------------------------------------------------------------------------------
JANUARY 28, 2001 JANUARY 30, 2000 JANUARY 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Net Sales $45,738 $38,434 $30,219
Cost of Merchandise Sold 32,057 27,023 21,614
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit 13,681 11,411 8,605
Operating Expenses:
Selling and Store Operating 8,513 6,819 5,332
Pre-Opening 142 113 88
General and Administrative 835 671 515
- ------------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 9,490 7,603 5,935
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Income 4,191 3,808 2,670
Interest Income (Expense):
Interest and Investment Income 47 37 30
Interest Expense (21) (41) (46)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest, net 26 (4) (16)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 4,217 3,804 2,654
Income Taxes 1,636 1,484 1,040
- ------------------------------------------------------------------------------------------------------------------------------------
Net Earnings $ 2,581 $ 2,320 $ 1,614
====================================================================================================================================
Basic Earnings Per Share $ 1.11 $ 1.03 $ 0.73
Weighted Average Number of Common Shares Outstanding 2,315 2,244 2,206
====================================================================================================================================
Diluted Earnings Per Share $ 1.10 $ 1.00 $ 0.71
Weighted Average Number of Common Shares Outstanding Assuming Dilution 2,352 2,342 2,320
====================================================================================================================================
See accompanying notes to consolidated financial statements.
2
Consolidated Balance Sheets
The Home Depot, Inc. and
Subsidiaries
amounts in millions, except share data
- --------------------------------------------------------------------------------------------------------
January 28, 2001 January 30, 2000
========================================================================================================
Assets
Current Assets:
Cash and Cash Equivalents $ 167 $ 168
Short-Term Investments, including current maturities of
long-term investments 10 2
Receivables, net 835 587
Merchandise Inventories 6,556 5,489
Other Current Assets 209 144
- --------------------------------------------------------------------------------------------------------
Total Current Assets 7,777 6,390
- --------------------------------------------------------------------------------------------------------
Property and Equipment, at cost:
Land 4,230 3,248
Buildings 6,167 4,834
Furniture, Fixtures and Equipment 2,877 2,279
Leasehold Improvements 665 493
Construction in Progress 1,032 791
Capital Leases 261 245
- --------------------------------------------------------------------------------------------------------
15,232 11,890
Less Accumulated Depreciation and Amortization 2,164 1,663
- --------------------------------------------------------------------------------------------------------
Net Property and Equipment 13,068 10,227
- --------------------------------------------------------------------------------------------------------
Long-Term Investments 15 15
Notes Receivable 77 48
Cost in Excess of the Fair Value of Net Assets Acquired, net of
accumulated amortization of $41 at January 28, 2001 and $33
at January 30, 2000 314 311
Other 134 90
- --------------------------------------------------------------------------------------------------------
$ 21,385 $ 17,081
========================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable $ 1,976 $ 1,993
Accrued Salaries and Related Expenses 627 541
Sales Taxes Payable 298 269
Other Accrued Expenses 1,402 763
Income Taxes Payable 78 61
Current Installments of Long-Term Debt 4 29
- --------------------------------------------------------------------------------------------------------
Total Current Liabilities 4,385 3,656
- --------------------------------------------------------------------------------------------------------
Long-Term Debt, excluding current installments 1,545 750
Other Long-Term Liabilities 245 237
Deferred Income Taxes 195 87
Minority Interest 11 10
Stockholders' Equity
Common Stock, par value $0.05. Authorized: 10,000,000,000 shares;
issued and outstanding - 2,323,747,000 shares at
January 28, 2001 and 2,304,317,000 shares at January 30, 2000 116 115
Paid-In Capital 4,810 4,319
Retained Earnings 10,151 7,941
Accumulated Other Comprehensive Income (67) (27)
- --------------------------------------------------------------------------------------------------------
15,010 12,348
Less Shares Purchased for Compensation Plans 6 7
- --------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 15,004 12,341
- --------------------------------------------------------------------------------------------------------
$ 21,385 $ 17,081
========================================================================================================
See accompanying notes to consolidated financial statements.
20
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21
3
Consolidated Statements of Stockholders' Equity and Comprehensive Income
The Home Depot, Inc. and
Subsidiaries
Accumulated
Common Stock Other Total
---------------- Paid-In Retained Comprehensive Stockholders'
amounts in millions, except per share data Shares Amount Capital Earnings Income Other Equity Income(1)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, FEBRUARY 1, 1998 2,196 $110 $2,589 $ 4,430 $ (28) $ (3) $ 7,098
====================================================================================================================================
Shares Issued Under Employee
Stock Purchase and Option Plans 17 1 165 -- -- -- 166
Tax Effect of Sale of Option Shares
by Employees -- -- 63 -- -- -- 63
Net Earnings -- -- -- 1,614 -- -- 1,614 $1,614
Translation Adjustments -- -- -- -- (33) -- (33) (33)
Cash Dividends ($0.077 per share) -- -- -- (168) -- -- (168)
-------
Comprehensive Income for Fiscal 1998 $1,581
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 31, 1999 2,213 $111 $2,817 $ 5,876 $(61) $(3) $8,740
====================================================================================================================================
Shares Issued Under Employee
Stock Purchase and Option Plans 19 1 273 -- -- -- 274
Tax Effect of Sale of Option Shares
by Employees -- -- 132 -- -- -- 132
Conversion of 3 1/4% Convertible
Subordinated Notes, net 72 3 1,097 -- -- -- 1,100
Net Earnings -- -- -- 2,320 -- -- 2,320 2,320
Translation Adjustments -- -- -- -- 34 -- 34 34
Shares Purchased for Compensation Plans -- -- -- -- -- (4) (4)
Cash Dividends ($0.113 per share) -- -- -- (255) -- -- (255)
-------
Comprehensive Income for Fiscal 1999 $2,354
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 30, 2000 2,304 $115 $4,319 $ 7,941 $(27) $(7) $12,341
====================================================================================================================================
Shares Issued Under Employee
Stock Purchase and Option Plans 20 1 348 -- -- -- 349
Tax Effect of Sale of Option Shares
by Employees -- -- 137 -- -- -- 137
Net Earnings -- -- -- 2,581 -- -- 2,581 2,581
Translation Adjustments -- -- -- -- (40) -- (40) (40)
Stock Compensation Expense -- -- 6 -- -- -- 6
Shares Purchased for Compensation Plans -- -- -- -- -- 1 1
Cash Dividends ($0.16 per share) -- -- -- (371) -- -- (371)
-------
Comprehensive Income for Fiscal 2000 $2,541
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 28, 2001 2,324 $116 $4,810 $10,151 $ (67) $ (6) $15,004
====================================================================================================================================
(1) Components of comprehensive income are reported net of related taxes.
See accompanying notes to consolidated financial statements.
4
Consolidated Statements of Cash Flows
The Home Depot, Inc. and
Subsidiaries
amounts in millions Fiscal Year Ended
- -----------------------------------------------------------------------------------------------------------------
January 28, 2001 January 30, 2000 January 31, 1999
=================================================================================================================
CASH PROVIDED FROM OPERATIONS:
Net Earnings $ 2,581 $ 2,320 $ 1,614
Reconciliation of Net Earnings to Net Cash
Provided by Operations:
Depreciation and Amortization 601 463 373
(Increase) Decrease in Receivables, net (246) (85) 85
Increase in Merchandise Inventories (1,075) (1,142) (698)
Increase in Accounts Payable and Accrued Expenses 754 820 423
Increase in Income Taxes Payable 151 93 59
Other 30 (23) 61
- -----------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operations 2,796 2,446 1,917
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures, net of $16, $37 and $41 of non-cash
capital expenditures in fiscal 2000, 1999 and 1998, respectively (3,558) (2,581) (2,053)
Purchase of Remaining Interest in The Home Depot Canada -- -- (261)
Payments for Businesses Acquired, net (26) (101) (6)
Proceeds from Sales of Property and Equipment 95 87 45
Purchases of Investments (39) (32) (2)
Proceeds from Maturities of Investments 30 30 4
Advances Secured by Real Estate, net (32) (25) 2
- -----------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (3,530) (2,622) (2,271)
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (Repayments) of Commercial Paper Obligations, net 754 (246) 246
Proceeds from Long-Term Borrowings 32 522 --
Repayments of Long-Term Debt (29) (14) (8)
Proceeds from Sale of Common Stock, net 351 267 167
Cash Dividends Paid to Stockholders (371) (255) (168)
Minority Interest Contributions to Partnership -- 7 11
- -----------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 737 281 248
- -----------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (4) 1 (4)
- -----------------------------------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents (1) 106 (110)
Cash and Cash Equivalents at Beginning of Year 168 62 172
- -----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 167 $ 168 $ 62
=================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH PAYMENTS MADE FOR:
Interest, net of interest capitalized $ 16 $ 26 $ 36
Income Taxes $ 1,386 $ 1,396 $ 940
=================================================================================================================
See accompanying notes to consolidated financial statements.
22
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23
5
Notes to Consolidated Financial Statements
The Home Depot, Inc. and
Subsidiaries
Note 1. Summary of Significant Accounting Policies
The Company operates Home Depot stores, which are full-service,
warehouse-style stores averaging approximately 108,000 square feet in size. The
stores stock approximately 40,000 to 50,000 different kinds of building
materials, home improvement supplies and lawn and garden products that are sold
primarily to do-it-yourselfers, but also to home improvement contractors,
trades people and building maintenance professionals. In addition, the Company
operates EXPO Design Center stores, which offer products and services primarily
related to design and renovation projects. The Company is currently testing
Villager's Hardware with four stores, which offer products and services for home
enhancement and smaller project needs in a convenience hardware store format.
Additionally, the Company operates one Home Depot Floor Store, a test store
that offers only flooring products and installation services. At the end of
fiscal 2000, the Company was operating 1,134 stores, including 1,027 Home Depot
stores, 26 EXPO Design Center stores, 4 Villager's Hardware stores and 1 Home
Depot Floor Store in the United States; 67 Home Depot stores in Canada; 5 Home
Depot stores in Chile; 2 Home Depot stores in Argentina; and 2 Home Depot stores
in Puerto Rico. Included in the Company's Consolidated Balance Sheet at January
28, 2001 were $871 million of net assets of the Canada, Chile and Argentina
operations.
FISCAL YEAR The Company's fiscal year is a 52- or 53-week period ending on the
Sunday nearest to January 31. Fiscal years 2000, 1999 and 1998, which ended
January 28, 2001, January 30, 2000 and January 31, 1999, respectively, consisted
of 52 weeks.
BASIS OF PRESENTATION The consolidated financial statements include the
accounts of the Company, its wholly-owned subsidiaries and its majority-owned
partnership. All significant intercompany transactions have been eliminated in
consolidation.
Stockholders' equity, share and per share amounts for all periods presented have
been adjusted for a three-for-two stock split effected in the form of a stock
dividend on December 30, 1999 and a two-for-one stock split effected in the form
of a stock dividend on July 2, 1998.
CASH EQUIVALENTS The Company considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents. The Company's
cash and cash equivalents are carried at fair market value and consist primarily
of commercial paper, money market funds, U.S. government agency securities and
tax-exempt notes and bonds.
MERCHANDISE INVENTORIES Inventories are stated at the lower of cost (first-in,
first-out) or market, as determined by the retail inventory method.
INVESTMENTS The Company's investments, consisting primarily of high-grade debt
securities, are recorded at fair value and are classified as available-for-sale.
INCOME TAXES The Company provides for federal, state and foreign income taxes
currently payable, as well as for those deferred because of timing differences
between reporting income and expenses for financial statement purposes versus
tax purposes. Federal, state and foreign incentive tax credits are recorded as
a reduction of income taxes. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect of a change in tax rates is recognized as income or expense in the period
that includes the enactment date.
The Company and its eligible subsidiaries file a consolidated U.S. federal
income tax return. Non-U.S. subsidiaries, which are consolidated for financial
reporting, are not eligible to be included in consolidated U.S. federal income
tax returns, and separate provisions for income taxes have been determined for
these entities. The Company intends to reinvest the unremitted earnings of its
non-U.S. subsidiaries and postpone their remittance indefinitely. Accordingly,
no provision for U.S. income taxes for non-U.S. subsidiaries was required for
any year presented.
DEPRECIATION AND AMORTIZATION The Company's buildings, furniture, fixtures and
equipment are depreciated using the straight-line method over the estimated
useful lives
6
of the assets. Improvements to leased premises are amortized using the
straight-line method over the life of the lease or the useful life of the
improvement, whichever is shorter. The Company's property and equipment is
depreciated using the following estimated useful lives:
Life
- -------------------------------------------------------------------------------
Buildings 10-45 years
Furniture, fixtures and equipment 5-20 years
Leasehold improvements 5-30 years
Computer software 3-5 years
- -------------------------------------------------------------------------------
ADVERTISING Television and radio advertising production costs are amortized over
the fiscal year in which the advertisements first appear. All media placement
costs are expensed in the month the advertisement appears. Included in current
assets are $20.2 million and $24.4 million at the end of fiscal 2000 and 1999,
respectively, relating to prepayments of production costs for print and
broadcast advertising.
COST IN EXCESS OF THE FAIR VALUE OF NET ASSETS ACQUIRED Goodwill, which
represents the excess of purchase price over fair value of net assets acquired,
is amortized on a straight-line basis over 40 years. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining useful life can be recovered through
undiscounted future operating cash flows of the acquired operation. The
amount of goodwill impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting the Company's
average cost of funds.
IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews long-lived assets for
impairment when circumstances indicate the carrying amount of an asset may not
be recoverable. Impairment is recognized to the extent the sum of undiscounted
estimated future cash flows expected to result from the use of the asset is less
than the carrying value. Accordingly, when the Company commits to relocate or
close a store, the estimated unrecoverable costs are charged to selling and
store operating expense. Such costs include the estimated loss on the sale of
land and buildings, the book value of abandoned fixtures, equipment and
leasehold improvements and a provision for the present value of future lease
obligations, less estimated sub-lease income.
STOCK COMPENSATION Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation," encourages the use of a
fair-value-based method of accounting. As allowed by SFAS 123, the Company has
elected to account for its stock-based compensation plans under the intrinsic
value-based method of accounting prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." Under APB
25, compensation expense is recorded on the date of grant if the current
market price of the underlying stock exceeded the exercise price. The Company
complies with the disclosure requirements of SFAS 123.
COMPREHENSIVE INCOME Comprehensive income includes net earnings adjusted for
certain revenues, expenses, gains and losses that are excluded from net earnings
under generally accepted accounting principles. Examples include foreign
currency translation adjustments and unrealized gains and losses on investments.
24
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25
7
Notes to Consolidated Financial Statements (continued)
The Home Depot, Inc. and
Subsidiaries
FOREIGN CURRENCY TRANSLATION The assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the current rate of exchange on the
last day of the reporting period, revenues and expenses are translated at the
average monthly exchange rates, and all other equity transactions are translated
using the actual rate on the day of the transaction.
USE OF ESTIMATES Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from these estimates.
RECLASSIFICATIONS Certain amounts in prior fiscal years have been reclassified
to conform with the presentation adopted in the current fiscal year.
Note 2. Long-Term Debt
The Company's long-term debt at the end of fiscal 2000 and 1999 consisted of the
following (amounts in millions):
January 28, 2001 January 30, 2000
================================================================================
Commercial Paper; weighted average
interest rate of 6.1% at January 28, 2001 $ 754 $ --
6 1/2% Senior Notes; due September 15, 2004;
interest payable semi-annually on
March 15 and September 15 500 500
Capital Lease Obligations; payable
in varying installments through
January 31, 2027 (see note 5) 230 216
Installment Notes Payable; interest imputed
at rates between 7.2% and 10.0%; payable
in varying installments through 2018 41 45
Other 24 18
- --------------------------------------------------------------------------------
Total long-term debt 1,549 779
Less current installments 4 29
- --------------------------------------------------------------------------------
Long-term debt, excluding current
installments $1,545 $750
================================================================================
In January 2001, the Company replaced its existing commercial paper program with
a new program that increases the maximum available borrowings to $1 billion. In
connection with the program, the Company has a back-up credit facility with a
consortium of banks for up to $800 million. The credit facility, which expires
in September 2004, contains various restrictive covenants, none of which is
expected to materially impact the Company's liquidity or capital resources.
Commercial paper borrowings of $754 million outstanding at January 28, 2001 were
classified as non-current pursuant to the Company's intent and ability to
continue to finance this obligation on a long-term basis, as necessary, through
the commercial paper program and the back-up credit facility.
8
Notes to Consolidated Financial Statements (continued)
The Home Depot, Inc. and
Subsidiaries
During fiscal 1999, the Company issued $500 million of 6 1/2% Senior Notes
("Senior Notes"). The Senior Notes may be redeemed by the Company at any time,
in whole or in part, at a redemption price plus accrued interest up to the
redemption date. The redemption price is equal to the greater of (1) 100% of the
principal amount of the Senior Notes to be redeemed or (2) the sum of the
present values of the remaining scheduled payments of principal and interest to
maturity. The Senior Notes are not subject to sinking fund requirements.
During 1999, the Company redeemed its 3 1/4% Convertible Subordinated Notes
("3 1/4% Notes"). A total principal amount of $1.1 billion was converted into
72 million shares of the Company's common stock.
Interest expense in the accompanying Consolidated Statements of Earnings is net
of interest capitalized of $73 million in fiscal 2000, $45 million in fiscal
1999 and $31 million in fiscal 1998.
Maturities of long-term debt are $4 million for fiscal 2001, $42 million for
fiscal 2002, $5 million for fiscal 2003, $507 million for fiscal 2004 and
$761 million for fiscal 2005.
As of January 28, 2001, the market value of the publicly traded Senior Notes was
approximately $515 million. The estimated fair value of commercial paper
borrowings approximates their carrying value. The estimated fair
value of all other long-term borrowings, excluding capital lease obligations,
was approximately $67 million compared to the carrying value of $65 million.
These fair values were estimated using a discounted cash flow analysis based on
the Company's incremental borrowing rate for similar liabilities.
Note 3. Income Taxes
The provision for income taxes consisted of the following (in millions):
Fiscal Year Ended
---------------------------------------------------------
January 28, 2001 January 30, 2000 January 31, 1999
- -----------------------------------------------------------------------------
Current:
U.S. $1,267 $ 1,209 $ 823
State 216 228 150
Foreign 45 45 20
- ---------------------------------------------------------------------------
1,528 1,482 993
- ---------------------------------------------------------------------------
Deferred:
U.S. 98 9 46
State 9 (4) (1)
Foreign 1 (3) 2
- ---------------------------------------------------------------------------
108 2 47
- ---------------------------------------------------------------------------
Total $1,636 $ 1,484 $ 1,040
===========================================================================
26
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27
9
Notes to Consolidated Financial Statements (continued)
The Home Depot, Inc. and
Subsidiaries
The Company's combined federal, state and foreign effective tax rates for fiscal
years 2000, 1999 and 1998, net of offsets generated by federal, state and
foreign tax incentive credits, were approximately 38.8%, 39.0% and 39.2%,
respectively. A reconciliation of income tax expense at the federal statutory
rate of 35% to actual tax expense for the applicable fiscal years follows
(in millions):
Fiscal Year Ended
----------------------------------------------------
January 28, 2001 January 30, 2000 January 31, 1999
- ----------------------------------------------------------------------------------
Income taxes at U.S.
statutory rate $1,476 $1,331 $ 929
State income taxes, net of
federal income tax benefit 146 145 96
Foreign rate differences 5 2 --
Other, net 9 6 15
- --------------------------------------------------------------------------------
Total $1,636 $1,484 $1,040
================================================================================
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities as of January 28, 2001
and January 30, 2000 were as follows (in millions):
January 28, 2001 January 30, 2000
- --------------------------------------------------------------------------------
Deferred Tax Assets:
Accrued self-insurance liabilities $ 151 $ 154
Other accrued liabilities 118 142
- --------------------------------------------------------------------------------
Total gross deferred tax assets 269 296
- --------------------------------------------------------------------------------
Deferred Tax Liabilities:
Accelerated depreciation (389) (321)
Other (75) (62)
- --------------------------------------------------------------------------------
Total gross deferred tax liabilities (464) (383)
- --------------------------------------------------------------------------------
Net deferred tax liability $(195) $ (87)
================================================================================
No valuation allowance was recorded against the deferred tax assets at
January 28, 2001 and January 30, 2000. Company management believes the
existing net deductible temporary differences comprising the total gross
deferred tax assets will reverse during periods in which the Company generates
net taxable income.
10
Notes to Consolidated Financial Statements (continued)
The Home Depot, Inc. and
Subsidiaries
Note 4. Employee Stock Plans
The 1997 Omnibus Stock Incentive Plan ("1997 Plan") provides that incentive
stock options, non-qualified stock options, stock appreciation rights,
restricted stock and deferred shares may be issued to selected associates,
officers and directors of the Company. The maximum number of shares of the
Company's common stock available for issuance under the 1997 Plan is the lesser
of 225 million shares or the number of shares carried over from prior plans plus
one-half percent of the total number of outstanding shares as of the first day
of each fiscal year. In addition, restricted shares issued under the 1997 Plan
may not exceed 22.5 million shares. As of January 28, 2001, there were
130,691,447 shares available for future grants under the 1997 Plan.
Under the 1997 Plan and prior plans, the Company has granted incentive and
non-qualified options for 126,219,271 shares, net of cancellations (of which
62,918,031 had been exercised). Incentive stock options vest at the rate of 25%
per year commencing on the first anniversary date of the grant and expire on the
tenth anniversary date of the grant. The non-qualified options have similar
terms; however, vesting does not generally begin until the second anniversary
date of the grant.
Under the 1997 Plan and prior plans, 92,495 shares of restricted stock, net of
cancellations (of which 2,268 had been exercised) have been granted. The
restricted shares vest over varying terms and are generally based on the
attainment of certain performance goals. The expected fair value of the
restricted shares on the vesting dates will be charged to expense ratably over
the vesting periods unless it is determined that the performance goals will not
be met.
In December 2000, the Company entered into an agreement with a key officer.
Under the Non-Qualified Stock Option and Deferred Stock Units Plan and
Agreement, the Company issued 2,500,000 non-qualified stock options with an
exercise price of $40.75 per share and also issued 750,000 deferred stock units.
Both the non-qualified options and deferred units vest 20% per year commencing
on the grant date. The non-qualified options expire on the tenth anniversary of
the vesting date. Each deferred stock unit entitles the officer to one share of
common stock to be received approximately two years after the vesting date of
the deferred stock unit, subject to certain deferral rights of the officer. The
fair value of the 750,000 deferred stock units granted is being amortized based
upon the vesting dates. The Company recorded stock compensation expense of
approximately $6 million in fiscal 2000.
28
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29
11
Consolidated Financial Statements (continued)
Home Depot, Inc. and
Subsidiaries
The per share weighted average fair value of stock options granted during fiscal
years 2000, 1999 and 1998 was $31.96, $18.86 and $9.94, respectively. The fair
value of these options was determined at the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
Stock Options
Granted in Fiscal Year
----------------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------------------------
Risk-free interest rate 6.4% 5.1% 5.6%
Expected volatility of common stock 54.6% 51.6 45.7%
Dividend yield 0.3% 0.3% 0.4%
Expected option term 7 years 5 years 5 years
==================================================================================================
The Company applies APB 25 in accounting for its stock plans and, accordingly,
no compensation costs have been recognized in the Company's financial statements
for incentive or non-qualified stock options granted. If, under SFAS 123, the
Company determined compensation costs based on the fair value at the grant date
for its stock options, net earnings and earnings per share would have been
reduced to the pro forma amounts below (in millions, except per share data):
Fiscal Year Ended
------------------------------------------------------
January 28, 2001 January 30, 2000 January 31, 1999
- -------------------------------------------------------------------------------------------
Net Earnings
As reported $ 2,581 $ 2,320 $ 1,614
Pro forma $ 2,364 $ 2,186 $ 1,527
Basic Earnings per Share
As reported $ 1.11 $ 1.03 $ 0.73
Pro forma $ 1.02 $ 0.97 $ 0.69
Diluted Earnings per Share
As reported $ 1.10 $ 1.00 $ 0.71
Pro forma $ 1.01 $ 0.94 $ 0.67
===========================================================================================
The following table summarizes options outstanding under the various stock
option plans at January 28, 2001, January 30, 2000 and January 31, 1999 and
changes during the fiscal years ended on these dates (shares in thousands):
Weighted
Number Average
of Shares Option Price
- -----------------------------------------------------------------------------
Outstanding at February 1, 1998 65,727 $10.08
Granted 21,041 21.63
Exercised (11,640) 9.07
Cancelled (3,536) 13.89
- -----------------------------------------------------------------------------
Outstanding at January 31, 1999 71,592 13.45
Granted 14,006 37.81
Exercised (13,884) 10.88
Cancelled (3,295) 18.88
- -----------------------------------------------------------------------------
Outstanding at January 30, 2000 68,419 18.79
Granted 14,869 49.78
Exercised (14,689) 13.15
Cancelled (2,798) 30.51
- -----------------------------------------------------------------------------
Outstanding at January 28, 2001 65,801 $26.46
=============================================================================
Exercisable 27,856 $15.80
=============================================================================
12
The following table summarizes information regarding stock options outstanding
as of January 28, 2001 (shares in thousands):
Weighted Weighted Weighted
Average Average Average
Range of Options Remaining Outstanding Options Exercisable
Exercise Prices Outstanding Life (Years) Option Price Exercisable Option Price
- ----------------------------------------------------------------------------------------
$ 6.00 to 10.00 12,814 3.9 $ 8.80 12,073 $ 8.80
10.00 to 16.00 10,919 6.0 11.50 5,876 11.50
16.00 to 24.00 15,170 7.0 21.00 6,329 20.40
24.00 to 40.00 12,457 8.1 37.30 2,021 36.90
40.00 to 60.00 14,441 9.6 49.80 1,557 41.20
- ----------------------------------------------------------------------------------------
65,801 7.0 $26.46 27,856 $15.80
- ----------------------------------------------------------------------------------------
In addition, the Company had 30,856,904 shares available for future grants
under the Employee Stock Purchase Plan ("ESPP") at January 28, 2001. The ESPP
enables the Company to grant substantially all full-time associates options to
purchase up to 129,618,750 shares of common stock, of which 98,761,846 shares
have been exercised from inception of the plan, at a price equal to the lower
of 85% of the stock's fair market value on the first day or the last day of the
purchase period. Shares purchased may not exceed the lesser of 20% of the
associate's annual compensation, as defined, or $25,000 of common stock at its
fair market value (determined at the time such option is granted) for any one
calendar year. Associates pay for the shares ratably over a period of one year
(the purchase period) through payroll deductions, and cannot exercise their
option to purchase any of the shares until the conclusion of the purchase
period. In the event an associate elects not to exercise such options, the full
amount withheld is refundable. During fiscal 2000, options for 5,395,900 shares
were exercised at an average price of $34.33 per share. At January 28, 2001,
there were 2,924,541 options outstanding, net of cancellations, at an average
price of $42.57 per share.
NOTE 5. LEASES
The Company leases certain retail locations, office space, warehouse and
distribution space, equipment and vehicles. While the majority of the leases
are operating leases, certain retail locations are leased under capital leases.
As leases expire, it can be expected that in the normal course of business,
leases will be renewed or replaced.
The Company has two operating lease agreements totaling $882 million comprised
of an initial lease agreement of $600 million and a follow-on agreement of $282
million. The Company financed a portion of its new stores opened from fiscal
1997 through 2000, as well as office buildings in fiscal 1999 and 2000, under
the operating lease agreements. Under both agreements, the lessor purchases
the properties, pays for the construction costs and subsequently leases the
facilities to the Company. The lease term for the $600 million agreement
expires in 2004 and includes four 2-year renewal options. The lease for the
$282 million agreement expires in 2008 with no renewal options. Both lease
agreements provide for substantial residual value guarantees and include
purchase options at original cost on each property.
The Company also leases an import distribution facility, including its related
equipment, under an operating lease arrangement. The lease for the import
distribution facility expires in 2005 and has four 5-year renewal options. The
lease agreement provides for substantial residual value guarantees and includes
purchase options at the higher of the cost or fair market value of the assets.
The maximum amount of the residual value guarantees relative to the assets
under the lease agreement described above is projected to be $799 million. As
the leased assets are placed into service, the Company estimates its liability
under the residual value guarantees and records additional rent expense on a
straight-line basis over the remaining lease terms.
Total rent expense, net of minor sublease income for the fiscal years ended
January 28, 2001, January 30, 2000 and January 31, 1999 was $479 million, $389
million and $321 million, respectively. Real estate taxes, insurance,
maintenance and operating expenses applicable to the leased property are
obligations of the Company under the building leases. Certain of the store
leases provide for contingent rentals based on percentages of sales in excess
of specified minimums. Contingent rentals for the fiscal years ended January
28, 2001, January 30, 2000 and January 31, 1999 were approximately $9 million,
$11 million and $11 million, respectively.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The approximate future minimum lease payments under capital and operating
leases at January 28, 2001 were as follows (in millions):
Capital Operating
Fiscal Year Leases Leases
- -------------------------------------------------------------------------------
2001 $ 38 $ 512
2002 38 512
2003 38 478
2004 38 440
2005 39 411
Thereafter 519 5,132
- -------------------------------------------------------------------------------
710 $7,485
=========
Less imputed interest 480
- -----------------------------------------------------------
Net present value of capital lease obligations 230
Less current installments 3
- -----------------------------------------------------------
Long-term capital lease obligations, excluding
current installments $227
- -----------------------------------------------------------
Short-term and long-term obligations for capital leases are included in the
Company's Consolidated Balance Sheets in Current Installments of Long-Term Debt
and Long-Term Debt, respectively. The assets under capital leases recorded in
Net Property and Equipment, net of amortization, totaled $213 million and $208
million at January 28, 2001 and January 30, 2000, respectively.
NOTE 6. EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution plan ("401(k)") that covers
substantially all associates meeting certain service requirements. The Company
makes weekly matching cash contributions to purchase shares of the Company's
common stock, up to specified percentages of associates' contributions as
approved by the Board of Directors.
The Company also maintains a 401(k) Restoration Plan to provide certain
associates deferred compensation that they would have received under the 401(k)
matching contribution if not for the maximum compensation limits under the
Internal Revenue Code. The Company funds the 401(k) Restoration Plan through
contributions made to a "rabbi trust," which are then used to purchase shares
of the Company's common stock in the open market. Compensation expense related
to this plan for fiscal years 2000, 1999 and 1998 was not material.
During February 1999, the Company made its final contribution to the Employee
Stock Ownership Plan and Trust ("ESOP"), which was originally established
during fiscal 1988. The ESOP covered substantially all full-time associates and
purchased shares of the Company's common stock in the open market through a
combination of contributions and loans made by the Company. All loans made from
the Company have been repaid.
The Company's combined contributions to the 401(k) and ESOP were $84 million,
$57 million and $41 million for Fiscal years 2000, 1999 and 1998, respectively.
At January 28, 2001, the 401(k) and the ESOP held a total of 33,144,570 shares
of the Company's common stock in trust for plan participants.
NOTE 7. BASIC AND DILUTED EARNINGS PER SHARE
The calculations of basic and diluted earnings per share for fiscal years 2000,
1999 and 1998 were as follows (amounts in millions, except per share data):
Fiscal Year Ended
-----------------------------------
JANUARY 28, 2001 JANUARY 30, 2000 JANUARY 31, 1999
- ----------------------------------------------------------------------------------------------------
Calculation of Basic Earnings Per Share:
Net earnings $2,581 $2,320 $1,614
Weighted average number of common shares
outstanding 2,315 2,244 2,206
- ----------------------------------------------------------------------------------------------------
Basic Earnings Per Share $ 1.11 $ 1.03 $ 0.73
- ----------------------------------------------------------------------------------------------------
Calculation of Diluted Earnings Per Share:
Net earnings $2,581 $2,320 $1,614
Tax-effected interest expense attributable
to 3 1/4% Notes -- 17 23
- ----------------------------------------------------------------------------------------------------
Net earnings assuming dilution $2,581 $2,337 $1,637
- ----------------------------------------------------------------------------------------------------
Weighted average number of common shares
outstanding 2,315 2,244 2,206
Effect of potentially dilutive securities:
3 1/4% Notes -- 51 72
Employee stock plans 37 47 42
- ----------------------------------------------------------------------------------------------------
Weighted average number of common shares
outstanding assuming dilution 2,352 2,342 2,320
- ----------------------------------------------------------------------------------------------------
Diluted Earnings Per Share $ 1.10 $ 1.00 $ 0.71
- ----------------------------------------------------------------------------------------------------
Employee stock plans represent shares granted under the Company's employee
stock purchase plan and stock option plans, as well as shares issued for
deferred compensation stock plans. For fiscal years 1999 and 1998, shares
issuable upon conversion of the Company's 3 1/4% Notes, issued in October
1996, were included in weighted average shares assuming dilution for purposes
of calculating diluted earnings per share. To calculate diluted earnings per
share, net earnings are adjusted for tax-effected net interest and issue costs
on the 3 1/4% Notes (prior to conversion to equity in October 1999) and divided
by weighted average shares assuming dilution.
28
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14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. COMMITMENTS AND CONTINGENCIES
At January 28, 2001, the Company was contingently liable for approximately $442
million under outstanding letters of credit issued in connection with purchase
commitments.
The Company is involved in litigation arising from the normal course of
business. In management's opinion, this litigation is not expected to materially
impact the Company's consolidated results of operations or financial condition.
NOTE 9. ACQUISITIONS
During fiscal 2000, Maintenance Warehouse, a wholly-owned subsidiary of The Home
Depot, acquired N-E Thing Supply Company, Inc. The Company acquired Apex Supply
Company, Inc. and Georgia Lighting, Inc. in fiscal 1999. These acquisitions were
recorded under the purchase method of accounting. Pro forma results of
operations for fiscal years 2000, 1999 and 1998 would not be materially
different as a result of the acquisitions of N-E Thing Supply Company, Inc.,
Apex Supply Company, Inc. and Georgia Lighting, Inc. and are therefore not
presented.
During the first quarter of fiscal 1998, the Company purchased, for $261
million, the remaining 25% partnership interest in The Home Depot Canada held by
The Molson Companies. The excess purchase price over the estimated fair value of
net assets of $117 million as of the acquisition date was recorded as goodwill
and is being amortized over 40 years.
NOTE 10. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the fiscal
years ended January 28, 2001 and January 30, 2000 (dollars in millions, except
per share data):
INCREASE BASIC DILUTED
IN COMPARABLE GROSS NET EARNINGS EARNINGS
NET SALES STORE SALES PROFIT EARNINGS PER SHARE PER SHARE
- ---------------------------------------------------------------------------------------------------------
Fiscal year ended January 28,
2001:
First quarter $11,112 7% $ 3,274 $ 629 $0.27 $0.27
Second quarter 12,618 6% 3,739 838 0.36 0.36
Third quarter 11,545 4% 3,450 650 0.28 0.28
Fourth quarter 10,463 0% 3,217 465 0.20 0.20
- ---------------------------------------------------------------------------------------------------------
Fiscal year $45,738 4% $13,681 $2,581 $1.11 $1.10
=========================================================================================================
Fiscal year ended January 30,
2000:
First quarter $ 8,952 9% $ 2,566 $ 489 $0.22 $0.21
Second quarter 10,431 11% 3,029 679 0.30 0.29
Third quarter 9,877 10% 2,894 573 0.26 0.25
Fourth quarter 9,174 9% 2,922 579 0.25 0.25
- ---------------------------------------------------------------------------------------------------------
Fiscal year $38,434 10% $11,411 $2,320 $1.03 $1.00
=========================================================================================================
Note: The quarterly data may not sum to fiscal year totals due to rounding.
15
The Home Depot, Inc. and
Subsidiaries
Management's Responsibility for Financial Statements
The financial statements presented in this Annual Report have been prepared with
integrity and objectivity and are the responsibility of the management of The
Home Depot, Inc. These financial statements have been prepared in conformity
with generally accepted accounting principles and properly reflect certain
estimates and judgments based upon the best available information.
The Company maintains a system of internal accounting controls, which is
supported by an internal audit program and is designed to provide reasonable
assurance, at an appropriate cost, that the Company's assets are safeguarded and
transactions are properly recorded. This system is continually reviewed and
modified in response to changing business conditions and operations and as a
result of recommendations by the external and internal auditors. In addition,
the Company has distributed to associates its policies for conducting business
affairs in a lawful and ethical manner.
The financial statements of the Company have been audited by KPMG LLP,
independent auditors. Their accompanying report is based upon an audit conducted
in accordance with auditing standards generally accepted in the United States of
America, including the related review of internal accounting controls and
financial reporting matters.
The Audit Committee of the Board of Directors, consisting solely of outside
directors, meets quarterly with the independent auditors, the internal auditors
and representatives of management to discuss auditing and financial reporting
matters. The Audit Committee, acting on behalf of the stockholders, maintains an
ongoing appraisal of the internal accounting controls, the activities of the
outside auditors and internal auditors and the financial condition of the
Company. Both the Company's independent auditors and the internal auditors have
free access to the Audit Committee.
/s/ Dennis J. Carey /s/ Carol B. Tome
- ---------------------------- -------------------------------------
Dennis J. Carey Carol B. Tome
Executive Vice President and Senior Vice President,
Chief Financial Officer Finance and Accounting
Independent Auditors' Report
The Board of Directors and Stockholders
The Home Depot, Inc.:
We have audited the accompanying consolidated balance sheets of The Home Depot,
Inc. and subsidiaries as of January 28, 2001 and January 30, 2000 and the
related consolidated statements of earnings, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended January 28, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Home Depot, Inc.
and subsidiaries as of January 28, 2001 and January 30, 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period ended January 28, 2001 in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
Atlanta, Georgia
February 19, 2001
30
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